On Tuesday, Australia’s financial services regulator launched a case suing an insurance firm for allegedly using an unfair insurance contract term. In a media release, ASIC (Australian Securities and Investments Commission) said this case against Auto & General Insurance Company (A&G) is the first time it has started proceedings of this kind.
According to A&G’s website, the firm insures millions of Australians. The firm’s offerings include car, home, contents, travel insurance and roadside assistance. The ASIC action only concerns a single term in their home and contents insurance contracts.
The case, now before the Federal Court, involves A&G’s standard form home and contents insurance contracts. These contracts are in products issued by companies including Budget Direct – a firm owned by A&G – and also ING Home & Contents, Virgin Insurance and Qantas Insurance.
In response to the Insurance Business coverage of the ASIC allegation, A&G’s communications services company, Cato & Clive reached out to IB. The company emailed a statement from an A&G spokesperson.
“A&G has not been refusing or reducing claims brought by customers, or cancelling their policies, in reliance on the term, that is the subject of the proceedings, since September 15, 2022,” said the spokesperson. “A&G believes that only five customers had claims refused or reduced in relation to the term before that date.”
The statement also noted that ASIC’s Federal Court action was in relation to “a single term in the A&G Home & Contents Insurance Product Disclosure Statement.” The email said this allegation relates “to the notification of changes during the period of cover” not complying with unfair contract terms law.
“We have fully co-operated with ASIC throughout its investigation,” said the spokesperson. “We are reviewing ASIC’s claims and are committed to working constructively with ASIC through the Court process.”
The original ASIC media release shed further light on this unprecedented court action.
In April 2021, said the release, the unfair contract term protections in Subdivision BA of the ASIC Act were expanded to include insurance contracts with consumers and small businesses. The expanded terms were assented to, said the release, as part of the Treasury Laws Amendment (More Competition, Better Prices) Act 2022. This included the introduction of civil penalties for breaches of the unfair contract term prohibition, but not until November this year.
This change to the regulations was the result of a recommendation by the Royal Commission into Misconduct in the Banking, Superannuation, and Financial Services Industry.
One aim of the expansion of the unfair contract terms, said the release, was to stop insurers denying claims based on a customer’s “failure to meet broad disclosure obligations.”
The Royal Commission recommendation also mentions “ensuring that consumers and small businesses receive the same protections from unfair terms in insurance contracts as they do for other financial services.”
The recommendation, said the release, also aimed to encourage insurers “to improve the level of clarity and transparency in their contracts and remove potentially unfair terms.”
On its website, A&G, whose Australian operations are headquartered in the Brisbane suburb of Toowong, says it’s “on a mission to be Australia’s best insurer - by providing affordable, comprehensive and dependable insurance solutions to all Australians.”
“The way we do things around here is best described as the A&G Way,” says the website. “It’s all about fostering a culture of high performance with high integrity.”
The Australian business includes the underwriting and distribution of insurance products through A&G and a separate online comparison business (Compare the Market). The firm has its own direct insurance brand, Budget Direct, and also distributes insurance products, says the website, through firms including ING Bank, Qantas and Virgin Money.
The company is a member of a global network called the Reef Investment Consortium. The consortium has similar businesses in South Africa, United Kingdom, Australia, Turkey, France, Singapore, China and Thailand.
ASIC said it is seeking declarations that the term is void and will also seek injunctions and corrective orders.
The regulator warned the industry about changes to the unfair contract terms two years ago. In March 2021, ASIC announced that the new regulations would apply to insurance from April that year.
“We expect insurers will proactively review their consumer and small business standard form contracts and obtain their own legal advice,” said the media release.
At the time, ASIC said “many insurers” made changes to their insurance contracts to make them fairer.
What do you think of the changes to the unfair insurance contract term?
